Will investors think the Rio Tinto Limited (ASX: RIO) share price is a buy after providing update 2019 iron ore guidance?
Rio Tinto’s origins date back more than 145 years, but today it is one of world’s largest aluminium and iron ore producers, with much of its sales revenue coming from its operates in Western Australia. It also owns, fully or partly, mining projects for copper, diamonds, uranium and other minerals.
Rio Tinto’s Updated 2019 Iron Ore Guidance
The resources company said that it’s currently experiencing “mine operational challenges”, particularly in the Greater Brockman hub in the Pilbara.
The challenges are resulting in a higher proportion of certain lower grade products, which Rio Tinto is partly doing itself to protect the quality of its flagship ‘Pilbara Blend’.
Rio Tinto said that around 1.5 million tonnes of these products were sold in the first quarter, which it had previously disclosed in its 2019 quarterly operations review a couple of months ago. The business expects to make more sales of these products this year.
Due to the challenges that Rio Tinto is facing, the resources company has reviewed its mine plans. The conclusion of the review is that guidance for Pilbara shipments (on a 100% basis) is being reduced. Initially the guidance was for 333 million tonnes to 343 million tonnes, now expectations are for 320 million tonnes to 330 million tonnes.
This change in volume guidance will also likely mean an increase of unit costs which will be updated at the second quarter operational review in around a month.
Is Rio Tinto A Buy?
I think this update shows that not only can commodity prices be uncertain, but production volumes can also be affected if a mine faces challenges, which is unfortunate considering iron ore prices are so high right now compared to recent history.
The best time to buy commodity businesses is near the bottom of the cycle, not near the top which is probably where we are now.
I prefer the idea of investing in reliable businesses that can be counted on nearly every year, which is why the proven shares in the free report below look attractive to me.
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